Financial Condition and Reporting Practices of the GSIS

Helena Agnes S. Valderrama
University of the Philippines, Cesar E.A. Virata School of Business, Diliman, Quezon City 1101, Philippines

Abstract

The objectives of this paper are three-fold: first, to assess the financial condition of the Government Service Insurance System (GSIS) post SSL-3 (the law which authorized significant government salary hikes from 2009 to 2012); second, to determine the compliance by the institution with the requirements of Philippine Financial Reporting Standards (PFRS); and third, to provide a current estimate of the returns GSIS members earn based on their expected pension benefits. After an evaluation of the 2005 to 2012 financial statements of the GSIS, the study finds that, as expected, SSL3 has started to adversely affect the GSIS’ finances. This is evidenced by the increasing gap between the institution’s actuarial value of social insurance liabilities and financial reserves and its declining contributions-to-benefits ratio. Despite an unqualified audit opinion, the study also finds material non-compliance in the reporting of the fund’s retirement and insurance liabilities in 2012. This results in an overstatement of GSIS 2012 net worth by almost P19 billion and an understatement of liabilities by the same amount. The effect on the entity’s profit and loss for the year is undeterminable without additional data. Finally, excluding the value of the insurance component of their membership benefits, government employees appear to earn less than the risk-free long-term rate of return on their monthly contributions. However, based on a comparison with a roughly similar pension product offered by a private insurer, members currently earn a higher return with the GSIS and so are still better off putting their money in GSIS for their pension needs.